MTR Pharma Tech's bonds will mature in four years with a total face value of $60 million, paying a half yearly coupon rate of 12% per annum. The yield on the bonds is 14% per annum. The market value for the companys preference share is $7.50 per unit while the ordinary share is currently worth $2.00 per unit. The preference share pays a dividend of $1.00 per share. The beta coefficient for the ordinary share is 1.5. The market risk premium is estimated to be 11% per annum and the risk-free rate is 4% per annum. The company is subject to a 30% corporate tax rate. Below is the recent balance sheet for the company:

Debt:

Bonds$60 million

Equity:

Preference shares (100,000 units)$3 million

Ordinary shares (10 million units)$15 million

a.Calculate the after-tax cost of each of the companys current financing sources as below:

• Bonds
• Preference shares
• Ordinary shares

b.Using the information provided, calculate the market values for the financing sources listed below:

• Bonds
• Preference shares
• Ordinary shares

c. Using the information from the previous sections, calculate the companys after-tax weighted average cost of capital (WACC). The finance manager has identified a potential project with an IRR of 20% per year. Should this project be undertaken by the company? Discuss your recommendation and support with relevant calculations.